2013 (1) ECS (188) (Tri-Kol)

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL,

EAST REGIONAL BENCH : KOLKATA
M/s TKM Global Logistics Ltd.
VERSUS
Commissioner of Service Tax, Kolkata
STAY PETITION NO.263/12 (in S.T. Appeal No.141/12)
Arising
23.12.2011

out of Order-in-Original No.55/Commr/ST/Kol/2011-12

passed by Commr. of Service Tax, Kolkata

dated

M/s TKM Global Logistics Ltd.

...APPLICANT(S)/APPELLANT(S)

VERSUS
Commr. of Service Tax, Kolkata

...RESPONDENT (S)

APPEARANCE:
Dr. Samir Chakraborty, Advocate for the Applicant (s)
Shri S. Misra, Addl. Commr. (A.R.) for the Department
CORAM:
SHRI S. K. GAULE, HON'BLE TECHNICAL MEMBER
DR. D. M. MISRA, HON'BLE JUDICIAL MEMBER

DATE OF HEARING: 30.08. 2012

DATE OF DECISION:29.11.2012

ORDER NO: S-1539/KOL/2012

We find that OLSPs not only provided service of clearing and forwarding on
behalf of the Applicant, but they also undertook incidental or auxiliary services
like collection of payment, management or supervision job. We also find that

OLSPs provided a number of services to the Applicant till they intimated M/s. TKM
Global regarding dispatch of cargo and in doing so, they rendered services on behalf
of the Applicant. [Para 6]
Per Shri S. K. Gaule:
1.

Heard both sides.

2.

The applicant filed this application for waiver of pre-deposit of Service Tax of
Rs.22,25,87,789.00 and equal amount of penalty under Section 78 of the Finance Act,
1994 (the Act in short).

3.

The Overseas Logistics Service Providers (OLSPs in short) entered into an Agreement
with the Applicant, M/s. TKM Global Logistics Ltd. for providing the entire clearing and
freight forwarding services including collection of cargo from the customer's place,
arranging for storage in the foreign land, Customs clearance, booking space with the
airline and shipping lines, landing over the cargo to airlines or shipping lines for
shipment and informing the Applicant regarding dispatch of cargo. The OLSPs
facilitated the business of the Applicant by providing marketing information in a
reciprocal manner and by creating condition in the foreign land wherefrom a support in
conducting the logistic service by providing their ready infrastructure for catering the
needs of client of the Applicant. Similar services were provided to the OLSPs by the
Applicant. OLSPs raised bill in foreign currency for activities relating to handling of
Cargo of the clients of TKM in foreign land. The bills raised on the customer by the
Applicant consisted of one taxable part covering the service charges for Logistic Service
provided within India by the Applicant. The officers of Service Tax Cell, DGCEI,
Kolkata, during the course of investigation against the Applicant, who. are registered
under service tax authority, found that the service provided by the OLSPs to the
Applicant satisfied the services covered under the Clauses (vi) & (vii) of the Business
Auxiliary Service(BAS). However, they have not paid the Service Tax on the same. The
Department accordingly raised a demand of Rs.22,25,87,789.00 against the Applicant
and there was a proposal for penalty under various provisions of the Finance Act, 1994.
The learned Commissioner confirmed the said proposal.

4.1.

The contention of the Applicant is that predominantly the service provided by OLSPs as
clearing and forwarding agents, cannot be termed as business auxiliary service. The
contention is that the applicant and the OLSPs are in the same trade. Therefore, the
exchange of information regarding potential customer is merely incidental and cannot be
considered as primary factor for classification of the service. There is no evidence that
for each transaction, there has been any exchange of marketing information.

4.2.

The contention is that the entire services are rendered outside India and therefore, no tax
is payable by the applicant under the Import Service Rules.

4.3.

The contention is that the services have been rendered as also acknowledged specifically
in the impugned Order to the Applicant under principal to principal based
contracts/agreements by and between the two parties. The customers of the Applicant
were in no way concerned therewith. In such circumstances, the service was rendered by
the OLSPs to the Applicant and not on behalf of the Applicant (its clients) or to anyone
else. Therefore, there is no service rendered as envisaged under Section 65(19)(vi) of the
Act. The contention is that all services rendered by them are, directly or indirectly,
connected with the clearing and forwarding operation. The contention is that their
alternate plea is that the activity of OLSPs amounted to rendering of Cargo Handling
Service within the meaning of and under the Act. The contention is that the service
rendered outside the country, by OLSPs to the Applicant, is falling under Rule 3(ii) of the
2006 Rules. The contention is that in the
present
demand the period prior to
18.04.2006 amounting to Rs.2,11,90,438.00 is bad in law. The contention of the
Applicant is that the service provider is situated outside India and they did not have any
office in India. Hence, in view of the decision of the Hon'ble Bombay High Court in the
case of Indian National Shipowners Association vs. UOI, 2009(013)STR-0235-Bom.,
which was later on, upheld by the Hon'ble Apex Court, the Applicant are not liable to pay
Service Tax before 18.04.2006. The contention of the Applicant is that the demand of
Rs.20,32,95,680.00 is for the period from April 1, 2005 to March 31, 2009, is barred by
limitation of time. Since the demand has been raised beyond the normal period of one
year provided under Section 73 (1) of the Act and there had been no suppression of
material fact on the part of the Applicant.

5.

The contention of the learned AR is that the Applicant themselves admitted that they had
entered into agreements with various OLSPs to obtain their services in order to
accomplish the overseas part of the clearing and forwarding job. The contention is that
the services provided by the OLSPs to the Applicant as business auxiliary service
because the activities of the OLSPs satisfy the categories appended under Clauses (vi)
and vii) of the definition of 'Business Auxiliary Service'. The contention is that OLSPs
not only provided service of clearing and forwarding on behalf of the Applicant, but they
also undertook incidental or auxiliary services like collection of payment,
management or supervision job. The contention is that OLSPs provided a number of
services to the Applicant till they intimated M/s. TKM Global regarding dispatch of
cargo and in doing so, they rendered services on behalf of the Applicant. Thus, they
provided the services, incidental or auxiliary, to provide such service. Their activity in
relation to the functioning of the Applicant as a clearing and forwarding agent, was surely
auxiliary in nature because in absence of their services, the Applicant would not be able
to fulfill their responsibility as the clearing and forwarding agent. The contention is that
if mere freight forwarding was the job specification of the OLSPs, they would not incur
expenditure for freight, port and other statutory charges in the foreign country in respect
of the goods in question. So, the principal supply by the OLSPs in the instant case was
'Business Auxiliary Service', whereas the clearing and forwarding services undertaken
by them, were the supplies ancillary in nature. The contention is that the taxability is

quite evident from the admission of the Applicant themselves. The contention is that in
terms of Notification No.36/2004-Service Tax, dated 31.12.2004, when any service is
provided by a person who is a non-resident or is from outside India having no office in
India, the same became taxable after 01.01.2005 and the benefit was available prior to
01.01.2005, i.e. before introduction of the Notification No.36/2004-ST. As regards the
objection raised by the Applicant on the question of demand of Rs.20,32,95,680.00 for
the period from April 1, 2005 to March
31,
2009 being barred by limitation of
time, the contention of the learned AR is that the learned Adjudicating Authority has
given a clear finding observing that the Applicant failed to pay Service Tax on the said
services received from the overseas buyers and these facts were not brought to the notice
of the Department.
6.

We find that the Applicant themselves admitted that they had entered into agreements
with various OLSPs to obtain their service in order to accomplish the overseas part of the
clearing and forwarding job. The services provided by the OLSPs to the Applicant were
business auxiliary services because the activities of the OLSPs satisfied the categories
appended under (vi) and (vii) of the definition of 'Business Auxiliary Service'. We find
that OLSPs not only provided service of clearing and forwarding on behalf of the
Applicant, but they also undertook incidental or auxiliary services like collection of
payment, management or supervision job. We also find that OLSPs provided a number
of services to the Applicant till they intimated M/s. TKM Global regarding dispatch of
cargo and in doing so, they rendered services on behalf of the Applicant. Thus, they
provided the services, incidental or auxiliary, to provide such service. Their activity in
relation to the functioning of the Applicant as a clearing and forwarding agent, was surely
auxiliary in nature because in absence of their services, the Applicant would not be able
to fulfill their responsibility as the clearing and forwarding agent. Further, we find that if
mere freight forwarding was the job specification of the OLSPs, they would not incur
expenditure for freight, port and other statutory charges in the foreign country in respect
of the goods in question. So, the principal supply by the OLSPs in the instant case was
'Business Auxiliary Service', whereas the clearing and forwarding services undertaken by
them, were the supplies ancillary in nature. We find that the taxability is quite evident
from the admission of the Applicant themselves. However, the Applicant made an
alternate plea that they are covered under 'Cargo Handling Service' and contested a part
of the demand on the ground of limitation of time. A question of limitation of time is a
mixed question of fact and law, which will be considered during regular hearing of the
Appeal. However, prima facie, we agree with the learned Advocate for the Applicant
that prior to insertion of Section 66A of the Finance Act, 1994 i.e., with effect from
18.04.2006, Service Tax for the amount of Rs.2,11,90,438.00 is not payable, as held by
the Hon'ble Bombay High Court in the case of Indian National Shipowners Association
(supra).
Consequently, the demand of the Service Tax for the amount of
Rs.2,11,90,438.00
for the period from April,
2005 to 18.04.2006 ought to be
deducted from the total amount of Service Tax liability of Rs.22,25,87,789.00. In these
circumstances, we find that Applicant are not able to make out a prima facie case for total
waiver of predeposit of the Service Tax and the penalties. The Applicant pleaded for

financial hardship, but they did not produce any evidence to substantiate the said plea.
The Hon'ble High Court of Andhra Pradesh in the case of CCE, Guntur vs. Sri Chaitanya
Educational Committee, 2011 (22)STR 135 (AP), held that the balance of convenience
has to be seen. We find that the balance of convenience is in favour of the Department.
In these circumstances, the Applicant are directed to make a predeposit of 25% of the
Service Tax amount of Rs.20,13,97,351.00 within eight weeks from the date of
communication of the Order and report compliance on
18.02.2013 . On compliance,
theremaining dues adjudged would stand waived and the recovery thereof, stayed during
pendency of the Appeal. In case of failure, the Appeal will be dismissed without any
further notice to the Applicant. The Stay Petition is disposed off, as above.
Pronounced on 29.11.2012